Philip Parker, the chairman and chief investment officer of Altair Asset Management, caused a stir when he announced he was selling all the Australian equities in his funds.
He wrote to investors saying that he was returning funds at an “overvalued and dangerous time in this cycle”.
Here are Parker’s four reasons behind the move:
- He sees the booming Australian property market unwinding soon. “The massive leverage that you’re seeing in terms of people’s exposure to property will then flow over to other liquid assets,” he told the ABC.
- China property and debt issues will become a major factor later in the year.
- The “overvalued” Australian equity market.
- An over-sized geopolitical risk with an unpredictable US political environment.
“In the last six to eight months, the investment committee of Altair have felt, to varying degrees, that the property market was heading into bubble territory,” Parker told ABC Radio’s Business PM.
“The overvalued Australian equity market is significant for active investors. We were finding, in the last three to five months, less and less value.”
He defended his decision to pull out of equities.
“It behooves me to hand back money when I see excessive risk to people’s hard-earned money,” he said.
On May 15 he advised Altair clients that he planned to “sell all the underlying shares in the Altair unit trusts and to then hand back the cash”.
“I would like to make clear this is not a winding up of Altair, but a decision to hand back client monies out of equities which I deem to be far too risky at this point,” Parker’s statement said.
“We think that there is too much risk in this market at the moment, we think it’s crazy.”
However, other fund managers point to the benefits of staying in the market, riding out the falls and the highs to achieve decent average returns over time.
Geoff Wilson, who founded Wilson Asset Management in 1997, said: “As a fund manager, it’s not whether you lose money when the market falls, it’s how much you make by taking the opportunities that present themselves when the market falls.”
Wilson’s funds are holding a lot of cash at the moment, a classic defensive position against volatility and good positioning to make investments if the market takes a big fall.
Wilson’s WAM Capital fund has $454.6 million in cash and fixed interest, or about 38% of the $1.18 billion portfolio, a 6 percentage point rise since March.